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    11:29 PM Loh Yu Wei Junie (Associate, Tan Rajah & Cheah)

    No reliance without expectation of returns? - Alvin Nicholas Nathan v Raffles Assets (Singapore) Pte Ltd [2016] SGCA 18

        

    Introduction

    Expectation and reliance losses are two categories of loss in the assessment of damages for breach of contract. In practice, a head of claim may comfortably fit within both categories. In fact, it may be argued that “reliance loss” is simply a subset of expectation loss, as this commentary will elaborate on below.

    This commentary will primarily focus on the Court of Appeal’s rejection of the claim for “wasted costs” (as defined below) in Alvin Nicholas Nathan v Raffles Assets (Singapore) Pte Ltd [2016] SGCA 18 and its reasoning in doing so.

    Background Facts

    The plaintiff, Alvin Nicholas Nathan (“Alvin”), had leased the premises in question at Merchant Square (“the Original Premises”) from the landlord (at that time) for a two year term starting from 15 December 2010 to 14 December 2012. The lease gave Alvin an option for a further renewal of two years, with any increase in rent capped at 20%. Alvin used the Original Premises for business purposes.

    On 25 January 2011, Alvin learned that the landlord had assigned the lease to the defendant, Raffles Assets (Singapore) Pte Ltd (“RA”). Thereafter, the basic timeline is as follows:

    -       On 4 October 2011, the Defendant informed Alvin that extensive renovation work was scheduled to be carried out from 1 March 2011 until the end of the year 2012.

    -       On 11 October 2011, RA told the tenants that they could remain in their premises only until December 2012 and that there would be no renewal of the lease. RA offered to waive rent and to release the tenants of their obligation to reinstate their premises if they agreed to vacate. Alvin declined this offer.

    -       On 24 October 2011, a second offer was made, which Alvin again declined.

    -       On 10 November 2011, Alvin received a letter from RA confirming that their letter of 24 October 2011 “served as a Notice of Termination” of Alvin’s lease of the Premises. Alvin was told to vacate the Premises by 29 February 2012. RA offered to pay Alvin compensation of $4,166.67 per month for the unexpired terms, totalling $39,583.36.

    -       Alvin’s solicitors thus wrote to RA to say that RA’s Notice of Termination was a repudiatory breach of contract which Alvin accepts, and that Alvin would hold RA liable for the consequences.

    -       On 15 February 2012, Alvin moved to new premises at Central Mall (“the Interim Premises”) (“the First Relocation”).

    -       On 30 May 2012, Alvin moved again to a unit a few floors above the Interim Premises (“the Current Premises”) (“the Second Relocation”).

    Alvin claimed the following in damages:

    a)   $375,913.46, being the expenses incurred in the renovation of the Original Premises (“wasted costs”), which was argued to be reasonable as Alvin had salvaged what he could, and he had a chance of recovering these renovation costs from the profits of his business but for the premature termination;

    b)   $83,962.00, being the costs of relocation to the Interim Premises;

    c)    $$41,963.06, being the costs of relocation from the Interim Premises to the Current Premises;

    d)   Damages for the cost of having to rent 2,388 square feet more space in the Current Premises as compared to the Original Premises;

    e)    Damages for the loss of “basic and additional benefits” from his insurance distributorship business; and

    f)     Damages for the loss of opportunity in recruiting new agents who would have earned him a higher profit.

    The High Court’s Decision

    The High Court, in Alvin Nicholas Nathan v Raffles Assets (Singapore) Pte Ltd [2015] SGHC 14, decided that the terms of the lease gave the landlord a right to terminate by giving 6 months’ notice and payment of compensation fixed at $4,166.67 per month for the expired term only in the event that the landlord grants an option to sell or contracts to sell the building. This right could have been exercised by RA’s predecessor-in-title, but not RA. It cannot be used to retrospectively terminate Alvin’s lease with the previous landlord. Hence, Alvin was entitled to hold RA liable for the loss and damage caused by its breach of the Lease Agreement.

    The High Court awarded Alvin the following in damages:

    a)   $150,000.00 for the expenses incurred in the renovation of the Premises (after taking into account the 422 days that Alvin had enjoyed the Premises for);

    b)   $20,000.00 for general inconvenience and trouble in finding new premises;

    c)    $62,654.39, for the increased rent paid per square foot for the Current Premises, calculated on the basis of the total area of the Original Premises (i.e. 6,685 square feet) and on the basis that the Lease Agreement would have been renewed for 2 years at a 20% increase in rent; and

    d)   $83,962.00 for the costs of relocation to the Interim Premises.

    The claim for relocation from the Interim Premises to the Current Premises was disallowed as the High Court was of the opinion that it was not reasonable to expect RA to pay for two relocations. Furthermore, no damages were awarded for the cost of having to rent 2,388 square feet more space in the Current Premises as the High Court took the view that no businessman would move to bigger premises if his business did not justify it.

    The remaining heads of claim were also dismissed as they were deemed too remote.

    Alvin appealed. There was no cross-appeal by RA.

    The Court of Appeal’s Decision

    The Court of Appeal disagreed with the High Court on three points in finding that:

    a)   Alvin should have been awarded an extra $14,099.28 for the increased rent he incurred whilst he occupied the Interim Premises; and

    b)   Alvin should also have been awarded an extra $41,963.06 for the costs of relocating from the Interim Premises to the Current Premises.

    c)    However, Alvin should not have been awarded $150,000 for the costs of renovation, as even if the Lease Agreement had been performed, Alvin would still have incurred those costs.

    In view of point (c) above, the Court of Appeal dismissed Alvin’s appeal, reasoning that he was better off without any appellate intervention. Costs of $30,000.00 (all in) were awarded to RA.

    Commentary

    Dismissal of Appeal

    This dismissal of Alvin’s claim on the basis that he was better off without appellate intervention seems to be unusual. Prima facie, it does not seem sound in principle for an appellant’s appeal to be wholly dismissed although his arguments had succeeded in part simply because, on the whole, the appellant would be better off if the lower court’s decision was left untouched. It is also noted that the fact that RA had not appealed the High Court’s decision does not bar the Court of Appeal from overturning the High Court’s decision and making the relevant orders that accords with its decision [see sections 37(5) and 37(6) of the Supreme Court of Judicature Act (Cap. 322)].

    Reliance or Expectation Loss?

    The claim of wasted costs seems to have been framed as a head of expectation damages rather than reliance damages in the High Court (see [11] of the High Court decision). However, the Court of Appeal treated it as a claim for reliance loss (see [24] of the Court of Appeal’s decision).

    This difference in categorisation between the courts highlights the fact that there is some ambiguity as to whether reliance loss represents a head of claim capable of standing on its own, or whether it is ultimately pegged to the claimant’s expectation loss. The Court of Appeal’s categorisation of the claim as reliance loss is understandable in view of what I refer to as the “profit-expectation understanding of reliance loss”, as elaborated on in the paragraph below.

    Anson’s Law of Contract (Sir Jack Beatson, Andrew Burrows, John Cartwright, Oxford University Press, 29th Ed, 2010) at pg 542 says that:

    “Although traditionally the reliance measure has been seen as an alternative basis to the expectation measure, the ‘no escape from a bad bargain’ and the recovery of pre-contractual expenses suggests that the reliance measure is better viewed as merely a method of assessing the claimant’s expectation measure. That is, where the claimant has incurred reliance expenses, it is given the benefit of a rebuttable presumption – and is thereby saved having to provide direct proof of the gains it would have made – that, if the contract had been performed, it would at the very least have made gains to cover its reliance expenses” (emphasis added).

    At first blush, the Court of Appeal’s judgment reflects the profit-expectation understanding of reliance loss. The Court of Appeal stated at [24] that “The basis for awarding reliance loss is the assumption that were the contract performed, the claimant would have at least fully recovered the costs and expenditure incurred” (emphasis added).

    However, further down in its judgment, the Court of Appeal seems to view reliance loss as a separate category of loss. At [25], the Court of Appeal noted that expectation and reliance losses are generally alternative claims because if a court awards both expectation and reliance loss, the claimant would have “effectively obtained the gains he expected as a result of the full performance of the contract, yet would not have had to incur the necessary costs in securing those gains.” [Although note the view expressed in The Law of Contract in Singapore (Andrew Phang Boon Leong, Academy Publishing, 2012) at paragraph 31.035, that both expectation and reliance loss ought to be allowed where the claim for the expectation loss of profits is made on a net basis rather than a gross basis.]

    Thereafter, the Court of Appeal’s reasoning to support its view that the claim for wasted costs should not have been awarded got somewhat baffling.

    At [27], the Court of Appeal said that “By awarding the Appellant both wasted costs and the costs of the first relocation, the Judge effectively exempted the Appellant from having to pay any costs for renovating the Original Premises” (emphasis in original) and that if “as the Judge found, the Appellant was not entitled to be indemnified as to the costs of the second relocation, there should be no question of the Appellant being compensated in a different way by awarding him the costs incurred in doing up the Original Premises”.

    These statements at [27] are confusing for the following reasons:

    a)   Firstly, it is not apparent from the both the Courts’ judgments that the costs of the First Relocation included any renovation costs. If these relocation costs are not renovation costs, they should not be equated with the costs for renovating the Original Premises. Given that Alvin only claimed $83,962.00 for the First Relocation and $41,963.06 for the costs of the Second Relocation, when the renovation cost of the smaller Original Premises was already $375,913.46, it is not likely that the costs of relocation included renovation costs.

    b)   Secondly, there is no suggestion in the High Court’s judgment that the award of wasted costs was in any way to make up for the denial of damages for the Second Relocation. The High Court awarded the cost of only the First Relocation because the Judge was of the view that it was not reasonable to expect RA to pay for two relocations. The High Court was of the view that Alvin “ought to take his time in finding the premises that he will move to”, to the extent of overstaying in the Original Premises, rather than making two relocations. This reasoning was acknowledged by the Court of Appeal earlier in disagreeing with the High Court, saying at [18] that “it was not unreasonable for the Appellant to have moved out of the Original Premises before 1 March 2012” and then saying at [20] that the Appellant ought to have been awarded the extra rent for the period where he occupied the Interim Premises, as well as the costs of the Second Relocation.

    Notwithstanding the above, based on the profit-expectation understanding of reliance loss, the Court of Appeal was correct in its end result of rejecting the claim for wasted costs.

    It may be reasoned that Alvin is still able to recoup the wasted costs from the profits of his business that continued to be run (seemingly without any significant disruption) and he has not lost any profit or chance to profit. This is not a situation in which Alvin had been left without a place of business following the termination of the Lease Agreement. In the present case, an award for wasted costs would have placed Alvin in a position better than he would have been in had the Lease been performed because Alvin would be granted the profits he expected from the full performance of the Lease, whilst he still had or has the opportunity to earn those same profits.

    Alternative approach

    In spite of the way the claim for wasted costs was framed in the High Court, it need not have been viewed as a claim that was inexorably linked to Alvin’s profit expectation.

    In The Law of Contract in Singapore (Andrew Phang Boon Leong, Academy Publishing, 2012) it is said that expectation loss encompasses both:

    (a) “the expectation of receiving the contractually stipulated performance”; and

    (b) “the expectation of putting the contractually stipulated performance to some, typically profitable, use” (see paragraph 21.033).

    Meanwhile, reliance loss is where the claimant’s expenses incurred in reliance on the promisor’s performance of the contract is wasted due to the promisor’s breach (see paragraph 21.034).

    In view of the above, one way of rationalising the claim could be as follows: Alvin had incurred the renovation costs in reliance on the performance of the Lease Agreement. Alvin was deprived of the use of his renovations for the remainder of their lifespan when he was caused to move out of the Original Premises prematurely by RA’s breach of the Lease Agreement. Therefore, Alvin should be compensated for that loss. This would be reliance loss (a loss of amenity) that is distinct and separate from whether Alvin would have been able to recoup the wasted costs from his profit.

    This reasoning would be even more compelling if Alvin had not claimed for the costs of renovating the new premises (the cost of cure). As explained earlier above, since the sum of the costs of the First and Second Relocations is less than the cost of renovating the Original Premises, it appears that Alvin did not make a claim for renovation costs of either of the new premises under his claim for relocation costs.

    Conclusion

    Clarification would be appreciated from the courts as to whether reliance loss is capable of being an independent measure of damages, or whether it will always be tied to the claimant’s expectation of profits.

    * This blog entry may be cited as Loh Yu Wei Junie, “No reliance without expectation of returns? - Alvin Nicholas Nathan v Raffles Assets (Singapore) Pte Ltd [2016] SGCA 18” (5 June 2016)  (http://www.singaporelawblog.sg/blog/article/162)

    ** A PDF version of this entry may be downloaded here

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